Lien machines: Sovereign citizens make their marks on easily manipulated state system

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Steven Magritz won’t leave Ozaukee County corporation counsel Dennis Kenealy alone.

A decade ago, Kenealy said, he helped evict Magritz from his 62-acre property in Fredonia after he failed to pay about $30,000 in property taxes.

In response, Magritz blitzed Kenealy and 36 other Ozaukee County public officials with false liens and involuntary bankruptcy petitions that blighted their credit scores. Kenealy said he found out about the bankruptcy filing when he tried to refinance his mortgage, and he’s still trying to clear his credit history.

“It’s been hard to reach those credit card companies and get that done. It was aggravating,” said Kenealy, who said he spent about 40 hours trying to manage the financial fallout Magritz created.

Prosecutors called Magritz’s behavior “paper terrorism,” a deliberate attempt to harass and intimidate officials by filing baseless lawsuits and abusing Wisconsin’s uniform commercial code lien system. Kenealy and his colleagues had to get court orders before the state Department of Financial Institutions, which is the state’s repository for the filings, could remove the bogus liens from its database.

Officials at the DFI say they lack the authority or personnel to screen out the bogus UCC filings. But when someone gets caught filing them, the state has strict penalties.

Magritz was convicted of criminal slander of title and served five years in prison.

But after his probation ended, he filed a false deed on the Fredonia property, according to a criminal complaint.

And in May, court records show, Magritz filed a civil suit in a Washington, D.C., district court alleging public officials had criminally taken his land. The suit named Ozaukee County, the county Sheriff’s Department and more than 40 people, including Kenealy and other officials Magritz targeted 10 years earlier.

“There was no remorse,” Kenealy said, “or acknowledgement of any mistakes.”

The Magritz cases highlight the state’s struggle to respond to what experts say is a national surge in anti-government activity by sovereign citizens, a loose network of extremists who don’t recognize most forms of governmental authority.
Sovereigns can burden court systems, frighten victims and, in some cases, commit acts of violence. The FBI considers them a domestic terrorism threat.

History of conflicts

Sovereign citizen ideology has its roots in the anti-government, anti-tax Posse Comitatus movement, said Mark Pitcavage, director of fact-finding at the Anti-Defamation League and a national expert on right-wing extremist groups. The Posse’s members refused to recognize governmental authority above the county level.

The group started in about 1970 on the West Coast and seeded itself in Wisconsin by the end of the decade. Its numbers swelled during the 1980s farm crisis, when thousands of farmers lost their land, said Ray Korte, Wisconsin assistant attorney general.

The movement has waxed and waned since then, Pitcavage said, but resurged during the recession.

“We’re a good three-and-a-half to four years into this resurgence, and it doesn’t show any signs of stopping,” he said. “That’s unusual.”

Sovereigns such as Magritz might refuse to pay taxes. Some run financial scams. Others trademark their names and then claim people who use the names owe millions of dollars.

A few have gone much further. In 2009, Richland County resident Robert Bayliss was sentenced to 48 years in prison after he fired guns and threw homemade grenades at police officers and SWAT teams. The conflict began when deputies tried to evict Bayliss because he hadn’t paid property taxes, according to news reports.

Kenealy said Ozaukee officials have feared violence by Magritz or his peers. Several county public officials declined interviews or did not return phone calls seeking comment.

The crimes have spurred the FBI to focus more on sovereigns, and police are trying to train officers to recognize them.

According to FBI publications, sovereigns sometimes mark papers with a red thumbprint. They might use fake license plates. Some cite the UCC or use odd grammar and punctuation during criminal proceedings, leading attorneys to question the sovereigns’ mental competency to stand trial.

Korte said he’s prosecuted about a dozen sovereigns since the mid-1990s.

“I get a lot of correspondence from people purporting to revoke their citizenship or renouncing their contracts with the state of Wisconsin,” he said. “When I think it’s appropriate, I or a district attorney warns these people.

“I make note of it, but it’s not illegal until someone acts.”

Manipulating the system

Often, those acts involve false UCC filings, Korte said.

Banks and other lenders file UCC financing statements to secure their positions on loans. Contractors might do the same during payment disputes with property owners.

The cost for a UCC filing in Wisconsin is $20, said DFI spokesman George Althoff, a system designed to ease commerce.

That makes bogus liens cost-effective forms of paper terrorism, Pitcavage said. But, he said, it can cost someone thousands of dollars to get rid of the lien.

DFI processes about 3,000 UCC filings every week, the vast majority of which are valid, Althoff said. He said while DFI checks UCC filings to make sure they’re properly filled out, the sheer volume of data and difficulty identifying false liens means screening for them would take thousands of staff hours.

But even if DFI had the resources, agency officials have no authority to monitor for false liens and can’t remove a lien without a court order, Althoff said. That means the onus falls on victims, who must sue.

DFI also doesn’t track bogus liens once it learns about them, Althoff said. Neither do state courts, according to officials.

The problem boils down to how hard it should be to file a lien and how much the state will let a small group of people influence policy, Korte said.

“It would be virtually impossible to instill strong safeguards, so we’re left dealing with the impact of that,” he said. “We’ve been pretty aggressive about going after people who file phony liens.”

Wisconsin has the oldest laws against bogus liens in the country because sovereigns once were so active in the state, Pitcavage said. Filing a false lien is criminal slander of title, a class H felony punishable by as much as 10 years in prison and a $10,000 fine.

But that hasn’t dissuaded sovereigns such as Steven Magritz or Cornelius Robert Hill. In 2011 and 2012, Hill allegedly filed “bad faith” UCC financing statements to harass six circuit court judges and five assistant district attorneys, according to an amended complaint against DFI and Hill filed by David Rice, Wisconsin assistant attorney general.

The lawsuit asks DFI to expunge the false liens from its database, and Rice has said the agency was cooperating.

Hill was charged with 12 counts of criminal slander of title. But, as of deadline July 16, he had eluded both service and arrest.

Magritz, too, remains at large. He’s again been charged with criminal slander of title and a warrant was issued for his arrest after he failed to appear at a hearing. That warrant remains outstanding, said Adam Gerol, Ozaukee County district attorney.

Other sovereign citizens, Kenealy said, continue to send Ozaukee County officials letters claiming rights to the property over which Magritz went to prison.

“It’s a true belief system,” Kenealy said. “They’re speaking to a whole different system and not acknowledging they’re even present in this one.”